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Punch still on the ropes

Punch Taverns is still facing a mountain of debt, falling sales and dwindling cash resources.
April 12, 2012

Underlying operating profits at Punch Taverns fell by almost 8 per cent to £128m in the first half, and a return to profitability at the pre-tax level was only achieved because there was no repeat of last year's £362m write down in assets. There is a still a huge debt pile to manage, and with customers turning away from pubs, Punch shares are still looking pretty drunk.

IC TIP: Sell at 9.75p

In fact, like-for-like income in the core estate of 2946 pubs fell by 2.1 per cent, with revenue from drink, rent and gaming machines all in decline. Even more worrying was the need to pump £43m into the two pub securitisations to stop them breaching their covenants. And this is slowly draining away cash, with funds held outside the securitisation structures falling from £113m at the August year-end to £102m. So to improve trade, Punch spent £12m improving the eating environment in 130 pubs in the first half and now plans to increase the percentage of food sales from 20 per cent to 35 per cent of the total.

Punch is also trying to improve the quality of the estate and managed to sell 214 pubs for £62m - £4m ahead of book value - from the turnaround estate of 1884 pubs. A further 500 non-core pubs targeted for disposal by the year-end.

Numis expects full-year EPS to fall by 20 per cent to 6.8p.

PUNCH TAVERNS (PUB)
ORD PRICE:9.75pMARKET VALUE:£ 65m
TOUCH:9.5-10.25p12-MONTH HIGH:18pLOW: 8.7p
DIVIDEND YIELD:nilPE RATIO:NA
NET ASSET VALUE:31p*NET DEBT:£2.2bn

Half-year to 3 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2011325-367-50.5nil
2012265303.7nil
% change-19---

*Includes intangible assets of £182m, or 27p a share